Getting diversification right for your portfolio is one of the best ways to deliver strong returns. Diversification can mean spreading your investments across industries and geographies.
It's a good idea to expand your portfolio into companies that operate in different industries. If you invest like everyone else, then you'll get similar results.
Here are three shares that I think would help diversify a portfolio:
Domain Holdings Australia Limited (ASX: DHG)
This property company was spun out from Fairfax Media Limited (ASX: FXJ), although it still owns a major stake.
Domain holdings is the entity responsible for the property site Domain, Allhomes and CommercialRealEstate.
Digital advertising is essential to attract the most buyers these days. Domain has a duopoly and should be able to steadily grow its revenue as it increases its prices. The cost of an advertisement on Domain is very low compared to the overall marketing budget for a property.
It's currently trading at 34x FY18's estimated earnings.
Australian Ethical Investment Limited (ASX: AEF)
Australian Ethical is a manager which focuses on investing in 'ethical' shares for investors. It invests in companies that have a positive on the planet, people and animals. The company as a whole 'agitates for change and that means taking a stance'.
This investment approach is becoming more popular with people and Australian Ethical is growing its funds under management (FUM) quite quickly. If it can win a large mandate from a superannuation fund then it could see a quick upswing in management fees.
It's currently trading at 52x FY17's earnings.
We all know Reece as a leading bathroom supplier, it has built up its business very effectively in this space. It also owns businesses that are wholesalers in the air-conditioning units & air-conditioning parts space as well as the refrigeration units & parts sector.
Reece is a major supplier of irrigation and related water management products for landscaping and agricultural markets. It is also a major supplier for underground pipe networks including water mains, sewer mains, gas mains, telecommunications, electrical and fire services.
It's trading at roughly 25x FY18's estimated earnings.
Foolish takeaway
I like all three businesses and that's why they're on my watchlist. At the current prices I think Australian Ethical could be the best choice because it has a good chance of rapidly increasing its FUM in the next few years.
